Philippine Bonds Drop on Signs Economy Improving; Peso Weakens

May 7 (Bloomberg) -- Philippine 10-year bonds fell, pushing
their yield to the highest level in almost six weeks, as
President Benigno Aquino signaled faster economic growth that
reduces the need for the central bank to cut borrowing costs.

The $200 billion Southeast Asian economy likely grew at
least 5.2 percent in the first quarter, the fastest in more than
a year, Aquino said in an interview on May 4. Bangko Sentral ng
Pilipinas doesn’t see any need to adjust monetary policy soon as
it monitors oil prices and growth, Governor Amando Tetangco said
in an interview today. Inflation accelerated for the first time
in four months in April.

“Inflation that was faster than expected suggested
economic activity may be picking up,” said Speedy Delfino, a
fixed-income trader at East West Bank Corp. in Manila. “There
is less need for the central bank to cut rates.”

The yield on the 15 percent bonds due March 2022 rose eight
basis points, or 0.08 percentage point, to 5.92 percent,
according to midday fixing prices at Philippine Dealing &
Exchange Corp. That is the highest level since March 28.

Consumer prices rose 3 percent in April from a year earlier,
the government reported on May 4, compared with a 2.6 percent
increase the previous month. The median estimate of economists
in a Bloomberg survey was for a 2.6 percent gain.

Bangko Sentral kept its overnight borrowing rate at 4
percent last month after two reductions this year. The next
policy meeting will be on June 14. First-quarter gross domestic
product data will be released on May 31.

The peso fell 0.1 percent to close at 42.35 per dollar in
Manila, according to Tullett Prebon Plc. One-month implied
volatility, which measures exchange-rate swings used to price
options, rose 30 basis points today to 5 percent. The
Philippines is comfortable with an exchange rate of 41 to 45,
Aquino said.